Unexpected and Wise Advice From Financial Advisor Ann Kaplan

I’d never heard of Circle Financial or Ann Kaplan before reading this Businessweek interview, but I found myself bookmarking it for later as she gives a lot of unexpected advice that you usually don’t hear from a financial advisor. For example, let’s take “What’s the biggest financial mistake people make?“. I would say that the majority of advisors would focus on some part of investing as that is how they justify their fees. Something like “they should manage risk better, like I do with my smart-alpha-low-beta asset allocation system”. Instead, Kaplan’s response focuses on spending and priorities (emphasis mine):

The biggest mistake isn’t bad investment choices, it’s overspending. Most people are very surprised when they analyze their spending to discover that a lot of it doesn’t reflect their priorities. Maybe they’re eating out a lot when their priority is travel. Most can cut one-third of their budget by eliminating things they don’t really need, whether that’s buying jewelry or theater tickets. The goal of thinking about this isn’t to encourage you to necessarily cut back but to understand that you can. That helps eliminate fear.

“When we study what diminishes wealth, down markets and manager selection are not key figures,” says Kaplan. Instead, it is lack of diversification, overspending and borrowing too much. Build an effective checklist for your road to a healthy portfolio that includes planning, diversifying, monitoring investments, securing tax efficiencies and arranging for appropriate wealth transfer. “All these factors have one thing in common,” says Kaplan. “They are all things we can control.”

Even though she is a former Goldman Sachs partner (which at least to me suggests skill at ruthless profit-seeking), she focuses on the personal/social/behavioral aspect of financial advising and is known for exchanging advice in a group environment:

What should people do before they make investments?
It’s very important before you jump to determine your financial identity, which includes your goals and your investment personality—whether you’re a gambler or a more conservative saver, for instance. Knowing your personality enables you to choose whether you prefer to be on a merry-go-round or a roller coaster, and helps you stay the course when markets dislocate.

You also need to quantify your assets and liabilities, what you’re spending, and what you’ll need in the future to obtain your goals. Don’t try to figure this out all at once. It’s easier if you break it into bite-size pieces. Spend 20 minutes every other day until you compile a personal balance sheet and cash-flow analysis.

Is it easier to manage your finances in a group setting?
Financial advice is still mostly delivered one-to-one, but being in a group allows you to hear different opinions. It’s motivating. It isn’t that different than exercise. Would anyone run a marathon on their own? When it’s organized, when you know you have to show up on a certain day, people tend to do it.

Comments

I’m definitely a gambler. I’m currently heavy on small cap stocks, reits, and emerging foreign markets… and while they have been doing really well, the percentage of their holdings within my portfolio has grown unbalanced.

I know i should re-balance but it’s so hard selling ones that are doing so well to buy funds that aren’t doing too well.

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